Buy to Let Risks

SOME OF THE RISKS ASSOCIATED WITH BUY-TO-LET MORTGAGES

On the face of it and up to now, BTLs have appeared to offer two things to mortgage brokers.

a) a good income stream in the absence of a viable first-time buyer market ( and for some of the time in the absence of any form of viable residential market).

b) a relatively compliance free sales process ( at least free from the potential constaints and possible burdens of FSA compliance)

HOWEVER, things have  been changing over the past couple of years.

It probably began in a quiet manner  several years ago, when Professional Indemnity insurers put various clauses into their proposal forms requiring firms to undertake non-regulated business on the same basis ( or whatever specific words were used) as regulated. Obviously that DIDN'T mean issuing an IDD on BTLs  - though I have seen cases where firms have done this - but it did mean exercising the same duty of care and diligence as that applied to regulated cases.

Then the phrase 'manipulation of schemes' appeared a few years ago. It was just about enough time after the market crash for mortgage fraudsters to work out the next opportunity to get mortgages by covert means. This particular issue crystalised further once the FSA had 'outlawed' self-certification of mortgages.

Of course, the standard basic level frauds of identity theft , not to mention the more complex ones involving fraudulent charges and non-existent properties have always been with us and, in all fairness, will continue to be so.

More recently, I have seen potential fraud - or at least activity to the lender that appears to be so - popping up in a number of different guises.

It doesn't really matter, in one sense, if certain actions by your clients are not actually fraudulent and are done for very good ( and legitimate) reasons. Whta does matter is what the ledner thinks about you and your firm if they find a case that , on the face of it, doesn't appear to stack up.

In order to avoid the dreaded letter for the lender - you know or can imagine the kind of thing - that basically says they don't like your business and don't want to deal with you anymore ( and by the way the FSA have also been advised), we are going to have to be more cautious about this hitherto more casual market niche.

So, what can we do?

Well one thing that we can do is to start to ask the right questions of our BTL customers. A number of cases of problem, if not necessarily fraud, that I have seen recently would have been resolved if a number of questions had been asked of the client. Admittedly,  the client could quite happily lie about the answers and that always leaves an exposure, but at least the questions would have been asked and at least the client's falsehood is documented ( and preferably signed for).

In order to take this a step further, the suggestion is to include a questionnaire for BTLs that attempts to trap any of the possible or likely risks. Such a questionnaire is set out on the following Blog. I hgave already issued it to my own clients and other associates for theri feedback and comment and I am looking to introduyce a revised version to my clients in the next week. In the meantime, any feedback would be  most welcome.